IT'S A FAIRLY TYPICAL SCENARIO. A practitioner receives an information request from HMRC for a client who is under enquiry. The officer's schedule is extensive. The practitioner is not sure that the officer is entitled to all of the documentation or information requested. Does the practitioner give the officer everything he has asked for?
All too often, the practitioner does exactly that. I am frequently asked to assist in enquiry or investigation cases where that has happened. Frequently, the officer will have asked for items that he is not entitled to, or not entitled to at that particular stage of the enquiry.
The relevant legislation, schedule 36, paragraph 1 (1), Finance Act 2008, requires that information or documentation requested by an officer must be "reasonably required" for checking the taxpayer's "tax position". The subjective nature of this requirement means that the officer and practitioner may have differing views of whether a document meets the test.
When practitioners tell me why they give HMRC all the items requested, including those the officer is not entitled to, comments typically include one or more of the following:
"The client said he didn't have anything to hide";
"I assumed the officer was entitled to everything on the list"; and
"I didn't want to upset my relationship with HMRC."
None of the above is a valid reason for giving HMRC documents or information it is not entitled to. Our role as advisers is not to make the officer's job easy, but to represent our clients and ensure that HMRC plays by the rules, in the same way it expects our clients to. Supplying information to which the officer is not entitled can result in unnecessary enquiries, which can be time-consuming to deal with, and costly for the client in professional fees.
There are numerous areas where problems can arise, but typical examples include requests for certain business documents (for example, appointment books or diaries) and private bank statements. Information requests can also fail the "reasonably required" test – for example, where an officer asks for details of a client's property transactions for the last 20 years.
A key point for practitioners to remember is that the officer is not necessarily entitled to everything he asks for. When the practitioner is not sure that the officer is entitled to a document, he should ask why the item is needed. HMRC should not be using its information powers to make speculative enquiries, and the officer should be able to justify his request.
Where the officer is entitled to the information he has requested, he should be provided with it at the earliest opportunity. This means in response to an informal request, and not forcing the officer to issue a formal notice, which can have adverse implications if the client is, or becomes, in a penalty position.
If the practitioner is in any doubt as to the officer's entitlement to particular documentation or information, he should obtain a second opinion. The practitioner should remember that aggrieved clients may take action if documentation or information has been sent to the officer where he was not entitled to those items, particularly where the client has suffered a loss as a result.
There will be times when agreement cannot be reached with the officer about his entitlement to items requested. In those circumstances, the officer may agree to review the position on receipt of the other items he has requested. That is often a better way of resolving the position than going to the tribunal, and it keeps the enquiry moving.
Phil Berwick, director, Pinsent Masons
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